Amyris Aims For Huge Second Half

Jim Lane

The Pharaohs of Farnesene continue to pick up momentum.

In California, Amyris (AMRS)
reported a net loss of $35.5M for the second quarter of 2014 on
sales of $9.3M, with a 5.4 percent increase in sales over Q2 2013.
Renewable product sales were $4.4M for the quarter, while
“Recognized grants and collaborations revenues” reached $4.9M.

In announcing results, the company highlighted:

• End of quarter cash, cash
equivalents and short-term investments balance of $90.2 million.
• Lowest farnesene production costs to date and successful start
of fragrance molecule production.
• Addition of Braskem as a new collaboration partner for renewable
isoprene and Natura for cosmetics sector.
• Produced and shipped jet grade farnesane, now in use in
commercial flights at 10% blends with Jet A/A1.

In addition, the company affirmed guidance for doubling renewable
product sales year-on-year and achieving cash flow positive from
operations in second half of 2014. Specifically, Amyris expected
for 2014:

Inflows. Renewable
product sales to be over $32 million, doubling our 2013 renewable
product sales, and to achieve positive cash margin from products.
In addition, we continue to expect collaboration inflows, a
non-GAAP measure, in the range of $60 million to $70 million by
the end of the year.Expenses. Cash operating expenses for R&D and
SG&A in the range of $80 million to $85 million and capital
expenditures less than $10 million in 2014.Earnings. Positive cash flow from operations
during the second half of the year and to achieve positive EBITDA
in 2015.Payback. Cash payback for our Brotas biorefinery
in the next two years (following 2013 start-up year), based on
plant cash contributions of $10 million to $15 million in 2014 and
$40 million to $50 million in 2015.

“With two new collaboration partners, continued progress on
renewable product sales, and our best operational performance to
date, we’re well positioned to double our renewable product sales
this year over 2013 and deliver positive operational cash flow in
the second half of this year. In May, we completed a $75 million
convertible note financing and, since quarter-end, increased our
cash balance sheet with payments from our ongoing collaborations
as well as additional inflows from new collaborations,”said John
Melo, Amyris President & CEO.

“We rounded out our developing product portfolio for the tire
industry when Braskem joined our collaboration to develop and
produce renewable isoprene, and our expanded collaboration with
Kuraray for liquid rubber. With TOTAL, we obtained industry
certification for sales of our renewable jet fuel and have begun
sales of jet fuel. We continue to experience strong demand for
sustainable products that perform better than the alternative and
are cost competitive, while solving the supply challenges our
customers face in growing their business,” concluded Melo.

The analysts react:

Rob Stone and James Medvedeff, Cowen & Company

Q2 non-GAAP loss was
36c (vs. St. 30c) on $8.2MM (vs. St. $12.4MM). Product costs are
improving, but COGS reflected higher-cost inventory. New
collaborations and product segments are encouraging, raising our
PT to $3.50 (vs. $3.00), but expected product sales for 2014 are
heavily H2-weighted. Execution risk on a steep ramp and potential
dilution from converts keep us at Market Perform (2).

Product revenue of
$4.4MM missed our $7.0MM estimate. A new fragrance molecule was
not yet shipping. Three new products should launch in 2015, and a
total of 10 molecules supports expected growth.

Adjusting Our Model
for Smaller 2015 Ramp, Slower Cost Reduction. We now project
2014-15E losses of $1.01 and $1.23, on sales of $76.3MM and
$115MM, vs. prior ($0.64) and ($0.35) on $76.5MM and $196MM.

Pavel Molchanov, Raymond James & Company

After a period of retooling
while in the “overpromise and underdeliver” penalty box, 2013 and
2014 have been Amyris’ first years with operations truly in
commercial mode, and the outlook for the rest of 2014 (and beyond)
is encouraging. There is visible commercialization progress, but
the top line’s reliance (for now) on partner-based R&D revenue
makes quarterly results very choppy. We maintain our Market
Perform rating.

* Brotas: steady as she goes.
The 50 million liter Brotas plant in Brazil made its first
farnesene shipment over a year ago and is back online (following
its 1Q downtime). Recall, as of last November, the initial 2014
target has been for product sales to at least double – likely
conservative after last year’s shortfall. This target remains in
place, and our current “guesstimate” for product sales is $38
million for 2014, up ~2.5x.

* $3.50/gal diesel:
intriguing target, but we’ll believe it when we see it.
It is on the Total front that the most interesting revelations
came out of yesterday’s call. Amyris is working on a framework for
producing renewable diesel in Europe – as part of the fuels JV
with Total – with a long-term target cost of $1.00/liter, or
$3.50/gallon. The feedstock is… to be disclosed later, so we can’t
help but feel some skepticism. The working assumption is that the
first large diesel plant will start up in 2017, with two or three
by decade’s end. If true, this would solidify Total’s status as
one of the most active strategics in bioindustrials.

Valuation.
Consistent with peers, we apply a discounted cash flow approach to
arrive at a DCF value of $2.90/share.

The Digest’s take

The analysts don’t see much upside in the stock for now — a
ramp-up in price over the past year has absorbed most of the
short-term potential. It’s highly intriguing that the company is
targeting $3.50 diesel with a Total/Amyris plant as soon as 2017.
That’s big news, if it materializes — but we would expect a move
away from the spot Brazilian sugar market in order to facilitate
this. Cellulosic sugars would be appropriate targets for anything
sold in the aviation to avoid food vs fuel debates.